A large increase in weather-driven demand expectations overnight from one of the major weather models had natural gas futures trading sharply higher as of early Wednesday. With prompt month expiration looming, the February Nymex contract was up 33.2 cents to $4.385/MMBtu at around 8:40 a.m. ET. March was up 29.7 cents to $4.191.
Overnight, the European weather model underwent a “major cold move,” adding close to 20 gas-weighted degree days versus its projections as of Tuesday afternoon, Bespoke Weather Services said.
“Consensus supports moving the official forecast solidly in the colder direction,” the firm told clients early Wednesday. “Confidence is even lower today, however, as the signals we see from tropical forcing do not seem to support this kind of cold continuing beyond the first few days of February.
“…So far, however, model consensus says that is incorrect, so either we placed too much emphasis on the orientation of tropical forcing, or models will ultimately correct back in the warmer direction over the next few days.”
NatGasWeather similarly observed a “notably colder” European model overnight, estimating a net increase of 40-45 Bcf of natural gas demand based on the changes in the temperature outlook.
The European dataset trended colder during the Feb. 3-8 time frame “by advancing frigid air out of the Rockies and Plains south and eastward for a return to strong national demand, enough so to now lean bullish for this important period,” NatGasWeather said. While the European model “isn’t quite as cold” as its American counterpart for this period, “it took a big step in that direction, and the natural gas markets surely noticed.”
Focus will shift to midday model and afternoon model runs to see whether colder trends hold for Feb. 3-8, the firm said. It noted that “the weather data’s been bouncing inconsistently between colder and warmer trends going back to last week.”
For its part, Bespoke also pointed to the recent volatility in the weather models.
“This move effectively prices in the colder change in modeling, but the question now is whether or not there will be additional panic buying into expiration, given what happened last February,” Bespoke said. “…We have low confidence, however, as we are not convinced this cold change holds, given what we see from the forcing signals.
“So far, admittedly, that looks to be the wrong way to lean, but we know these models can be very volatile.”
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January 26, 2022 at 08:57PM
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'Major Cold Move' from Euro Model Sends February Natural Gas Futures Surging - Natural Gas Intelligence
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